The FRA has approved new rules for the Settlement Guarantee Fund, aimed at enhancing capital market stability. The new regulations introduced by MCDR include increased resources and a structured risk management approach. Fund members can now settle obligations based on certain transaction criteria, and governance is established through a Management Committee that includes various sector representatives. These measures seek to protect stakeholder rights and align with international practices.
Egypt’s Financial Regulatory Authority (FRA) has enacted new executive regulations governing the functionalities of the Settlement Guarantee Fund. These changes, which seek to align with international standards, are intended to enhance financial stability within the capital markets. The procedures were formulated by the Board of Directors of Misr for Central Clearing, Depository and Registry (MCDR) in collaboration with the Fund’s Management Committee, under FRA Board Resolution No. 68 of 2024.
The FRA’s implementation aims to strengthen MCDR’s operations to be consistent with those of global central securities clearing and settlement entities, such as Central Counterparties (CCPs), thereby managing counterparty risk effectively. To further fortify the Fund, the FRA has increased its resources by 650% of member subscriptions through a systematic approach to manage counterparty risk. This system employs a structured “Waterfall” method to determine the order of financial resource usage in potential distress scenarios.
Moreover, members are permitted to settle obligations from transactions executed on listed securities on the Egyptian Stock Exchange up to six times their subscription amounts. This enables quicker settlements, particularly for transaction periods shorter than the standard T+2 cycle. The Fund’s role is to ensure obligations are met during trading activities on the Exchange, consequently reducing counterparty risk.
The Fund consists of all settlement members conducting transactions through MCDR and affiliated clearing banks. The securities necessary for meeting obligations are provided through a specific system set up by MCDR. The governance of the Fund includes a Management Committee made up of seven members chaired by the MCDR Managing Director. This committee comprises representatives from various sectors including securities brokerages, custodians, the MCDR, and the Egyptian Exchange.
Committee members are appointed post-FRA approval and serve three-year terms. To assure broad expertise, the committee may invite attendees to meetings, although these individuals will not possess voting rights. The FRA emphasizes that these initiatives are part of its continuous mission to promote the stability of the non-banking financial markets and safeguard the rights of all involved parties.
In conclusion, the FRA’s new regulations for the Settlement Guarantee Fund represent a significant advancement in the governance and operation of Egypt’s capital market. By aligning with international practices, increasing resources, and enhancing member engagement, the FRA aims to mitigate counterparty risks and foster a stable financial environment. These changes reflect a commitment to protect stakeholders’ interests and ensure the effectiveness of the Fund as a stabilizing entity in trading activities.
Original Source: www.zawya.com
